India is once again in the U.S.’ crosshairs, this time for allegedly allowing China to evade U.S. tariffs by routing its exports through the country. The latest allegations are part of a new White House report called ‘The Great Transhipment Scam’.

In particular, the U.S. has named the Pune-Gujarat-Chennai belt as one of the areas “enabling” China to evade tariffs to the detriment of supply chains in the U.S. 

This comes at a time when the U.S. has already imposed a 10% tariff on India for not doing enough to stop the import of goods made using forced labour, and is in the process of enacting legislation that would see tariffs of up to 100% imposed on India for its import of Russian oil. 

An ongoing investigation by the U.S. Trade Representative (USTR) related to excess capacity could see further tariffs on top of all this. 

‘Enabling’ China to evade tariffs

The U.S. had in 2018 levied tariffs ranging from 7.5% to 100% on goods from China under Section 301 of the Trade Act of 1974 for unfair trade and tech practices. On July 24, 2026, it added a further 12.5% tariff for forced-labour compliance gaps. 

“After their imposition, Chinese exporters increasingly routed goods through third countries,” the White House report noted. “Products that previously moved directly from China to the United States were shipped through jurisdictions where limited assembly, finishing, repackaging, relabeling, or documentation changes could create the appearance of a different national origin.” 

The report has identified more than 40 countries associated with “elevated illegal transshipment risk”, with India among the top “enablers” of China’s evasion of tariffs. 

India among top enablers

“The countries that comprise China’s Shadow Transshipment Network include many of America’s largest trading partners,” the report said. “China’s biggest enablers range from Mexico and Canada on U.S. land borders to the European Union, India, Japan, and South Korea.”

The report classifies the 40-odd countries into three tiers based on how big a transgressor the U.S. feels they are.

The top tier comprises “countries and trading blocs that account for large absolute volumes of China-linked goods while maintaining diversified industrial bases and major U.S.-bound export platforms”. 

The report added that in these economies, illegal transshipment risk is embedded within broad legitimate trade flows. This Tier 1 includes Canada, the European Union, India, Israel, Japan, Mexico, South Korea, and Taiwan.

“India’s Pune-Gujarat-Chennai production belt absorbs pumps and compressors… affecting industrial supply chains in Cincinnati, Dayton, and Columbus,” the report added.

How the scam supposedly works

The report goes on to explain that tariff arbitrage lies at the heart of this transshipment arrangement. When a Chinese product that faces a high U.S. tariff is routed through a country with a lower tariff rate, that difference simultaneously becomes a loss of revenue for the U.S. government and a profit for the exporter. 

“Such tariff arbitrage creates the financial engine behind the Great Transshipment Scam,” the report added. “The savings are more than sufficient to finance the capital equipment, logistics infrastructure, light assembly plants, repackaging operations, and ‘screwdriver factories’ needed to support the scam across Southeast Asia, Mexico, India, and Eastern Europe.” 

It added that such assembly factories are designed for tariff evasion, and tariff avoidance rather than true manufacturing.

“The Office of Trade and Economic Analysis (OTEA) estimates that approximately $67 billion in U.S.-bound goods were transshipped from China through the top hubs — Mexico, India, and Vietnam — in 2025, producing an estimated $28 billion in lost tariff revenue,” the report said.

The U.S. on Thursday (August 13, 2026) accused over 40 countries, including India, of operating a “shadow trans-shipment network” to help China evade high tariffs and unveiled plans to use artificial intelligence to detect and penalise such practices.

In a report, ‘The Great Transshipment Scam’, Peter Navarro, the top trade advisor to President Donald Trump, said the transshipments became more prevalent after 2018, when the Trump administration imposed Section 301 tariffs on China to counter “unfair trade practices.”

“For years, the great transshipment scam has let Communist China launder its exports through more than 40 countries,” Peter Navarro, Counsellor to the President for Trade and Manufacturing, told reporters.

The countries that comprise China’s Shadow Transshipment Network include many of America’s largest trading partners, ranging from Mexico and Canada on U.S. land borders to the European Union, India, Japan, and South Korea.

“China began using these third countries for minor processing, relabeling, repackaging, reinvoicing, or routing changes that created the appearance of a new national origin while leaving the underlying Chinese content largely intact,” Mr. Navarro said in the report.

He said by routing around the tariffs, China and its state-supported manufacturers and trading firms could push goods into jurisdictions with cheap labour, weak customs oversight, permissive free zones, or preferential U.S. trade access. The report said India’s Pune–Gujarat–Chennai production belt absorbs pumps and compressors, affecting industrial supply chains in Cincinnati, Dayton, and Columbus. “A Chinese pump that leaves Pune as Indian is a pump not machined in Cincinnati, Dayton or Columbus,” Mr. Navarro said.

The report pegs the annual value of illegally transshipped goods anywhere in the range from approximately $40 billion to $303 billion, depending on the methodology and definition used.

Mr. Navarro announced that the U.S. will use an AI-enabled “Detective Border” to identify transshipped goods reaching American shores.

The ‘Detective Border’ would support U.S. Customs and Border Protection (CBP) by integrating shipment data, routing histories, product classifications, ownership relationships, production-capacity indicators, anomaly detection, computer vision, and other analytical tools.

“The objective is to improve CBP’s ability to distinguish legitimate nearshoring and foreign investment from illegal pass-through trade, identify high-risk shipments, and convert analytical findings into interdiction, duty collection, penalties, and exclusion,” the report said.

Amid escalating trade tensions with China over its export restrictions on rare earth minerals, U.S. Treasury Secretary Scott Bessent has said that Washington expects support from India and other allied nations.

In an interview to Fox Business on Monday (October 13, 2025), Mr. Bessent said “this is China versus the world”. “They have pointed a bazooka at the supply chains and the industrial base of the entire free world,” he said.

“China is a command-and-control economy. They are neither going to command [nor] control us. We are going to assert our sovereignty in various ways,” he said.

“We have already been in touch with the allies. We will be meeting with them this week and, you know, I expect that we will get substantial global support from the Europeans, from the Indians, from the democracies in Asia,” Mr. Bessent added.

The Treasury Secretary warned that the U.S. adversary is making “provocative” moves.

“The United States is pushing for peace in the world. China is financing war,” he said.

“Trying to get leverage in front of a meeting with Donald Trump is a bad idea,” he said.

Mr. Bessent said Mr. Trump is reportedly expected to meet with Chinese President Xi Jinping in South Korea in late October.

On Sunday, Mr. Trump sought to calm fears of an escalating trade war with Beijing after threatening to impose 100% tariffs in response to new Chinese restrictions on the export of rare earths that are crucial to advanced manufacturing and military technology.

The U.S. has currently imposed 55% tariffs on Chinese goods.

In a post on Truth Social, Mr. Trump said that China’s economic troubles would “all be fine” and insisted that the U.S. “wants to help China, not hurt it”.

“Don’t worry about China, it will all be fine!” Mr. Trump wrote. “Highly respected President Xi just had a bad moment. He doesn’t want depression for his country, and neither do I. The USA wants to help China, not hurt it!!!”

Mr. Trump’s post came hours after China issued an official response to the U.S. President’s threat to impose a 100% tariff on Chinese imports by November 1.

China controls about 70% of global rare earths mining and nearly 90% of processing capacity.

Meanwhile, the Trump administration has imposed 25% reciprocal tariffs on India and an additional 25% levies for Delhi’s purchases of Russian oil, bringing the total duties imposed on India to 50%, among the highest in the world.

India has called the tariffs imposed by the U.S. “unjustified and unreasonable”.